Gilt Yields Fall

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  • June 3, 2019

Continuing from the recent trend, Gilt yields fell last week, reaching their lowest level since shortly after the EU referendum in 2016. Lower gilt yields suggest that investors are increasingly cautious and more willing to forgo returns in favour of capital protection. Furthermore, investor expectations of interest rate rises from the Bank of England in the medium to long term have fallen, with a 10-year gilt suggesting that interest rates will not move significantly from their current level. The fall in gilt yields has been part of the broader global picture, led by US treasuries as fears over a potential economic slowdown and a change in the direction of major central banks away from interest rate rises has increased the attractiveness of government bonds. Since October last year, 10-year gilt yields have gone from a peak of 1.72% to their current level of 0.89%.

Italy-EU tension

The conflict between the populist coalition and the EU commission over the current level of the government deficit is set to increase over the coming weeks. Substantial support in Italy for higher spending and cuts to taxes has emboldened the government to follow more of its promised policies. However, such moves will open up the country to fines from the EU for breaking the bloc’s budgetary rules. Although, as no member state has been fined previously for such violations and many other countries are still in breach, the Italian government may have the courage to continue. Investors have priced in the higher risks by increasing the yield premium to be paid by Italian bonds over their Eurozone equivalents.

UK Mortgage Approvals Surge

There was a surprise jump in UK mortgage approvals last week, marking a change in direction from the persistently low readings over the last year. UK Finance reported that mortgage approvals for new home purchases jumped to 43,000 in April from 40,500 in March and higher than the 39,300 expected. Mortgage approvals are a leading indicator to house purchasing activity so such an increase in lending should provide a ray of light for the usually downbeat UK housing market. Lower mortgage costs and real household income growth should all provide upward pressure on house prices and may even overcome political uncertainties that have been holding back the market in many areas.

Market Data

Index Open Close Change % Change
FTSE 100 7277 7161 -116 -1.59%
S&P 500 2822 2752 -70 -2.48%
Dax 12011 11726 -285 -2.37%
Cac 40 5316 5207 -109 -2.05%
Nikkei 225 21117 20601 -516 -2.44%
UK 10 Year Gilt Yield 0.96 0.89 -0.07 -7.29%

Posted By Will Dickson

Chief Investment Officer Will Dickson is a Chartered Wealth Manager as part of the Chartered Institute of Securities and Investment (CISI) qualification scheme. This recognition was obtained following an MSc in Finance and Investment from the University of Exeter, and an Accounting and Finance BSc from the University of Bath. Will’s exceptional talent is recognised by CityWire’s Wealth Manager, having been named as one of the UK’s Top 30 investment managers under the age of thirty for the last three years. Will manages and oversees P1’s range of investment portfolios. Working with the Investment Team, Will shapes the investment policy and fund selection for our Passive, Hybrid and Ethical and Sustainable portfolios. In conjunction with managing the fund portfolios, he oversees and our AIM Inheritance Tax and Tier 1 Investment Visa equity portfolios. Will has joint written articles with P1’s Head of Research, Dr Rayer. Their article “Hypothesis: Risk, like Mass and Energy, can neither be created nor destroyed” featured in the CISI’s The Review of Financial Markets. In addition to contributing to articles with Dr Rayer, Will often delivers P1 CISI Endorsed lectures to Independent Financial Advisers. You can see Will’s take on weekly investment news here.